[2010] UKFTT 225 (TC)

TC00526

Appeal number TC/2010/1469

Late filing penalties and late payment surcharges for self-assessment income tax returns for multiple years – sections 93 and 59C TMA 1970 – Whether a reasonable excuse – Taxpayer’s medical condition – Appeals allowed in part

FIRST-TIER TRIBUNAL

TAX

Ms AZAppellant

- and -

THE COMMISSIONERS FOR HER MAJESTY’S
REVENUE AND CUSTOMSRespondents

DECISION NOTICE: full findings of fact and reasons for the decision

TRIBUNAL: Judge Peter Kempster

Mr Anthony Hughes

Sitting in public at Holborn Bars, London on 23 April 2010

This decision notice has been anonymised at the direction of the Tribunal.

Having heard Mr Peter Torino(AIMS Accountants) for the Appellant and Mr Philip Rowe (HMRC Appeals Unit) for the Respondents.

© CROWN COPYRIGHT 2010

1.This was an appeal by Ms AZ (“the Taxpayer”) against multiple late filing penalties and late payment surcharges in relation to her income tax returns for the tax years 2002-03 to 2008-09. The appeals had been allocated to the Default Paper category pursuant to Procedure Rule 23 and the Taxpayer had exercised her right to have an oral hearing of the appeals (Rule 26(7) refers).

The penalties and surcharges under appeal

2.Mr Rowe for the Respondents (“HMRC”) provided a convenient summary of the late filing penalties charged by HMRC pursuant to s 93 Taxes Management Act 1970 (“TMA”) and the late payment surcharges charged by HMRC pursuant to s 59C TMA, and this is included in this Decision Notice as an Appendix.

3.With one exception, the parties agreed that the penalties and surcharges had been validly assessed and were correct in amount, and that the appeals against all those items had been validly made. The exception was the surcharge for the tax year 2008-09 in the amount of £96.34, which is dealt with in paragraphs 13 & 16 below. The Tribunal explained that it had no jurisdiction to consider the interest charged by HMRC on late paid income tax.

The relevant law

4.Section 93 TMA states, so far as relevant:

Failure to make return for income tax and capital gains tax

(1) This section applies where—

(a) any person (the taxpayer) has been required by a notice served under or for the purposes of section 8 or 8A of this Act (or either of those sections as extended by section 12 of this Act) to deliver any return, and

(b) he fails to comply with the notice.

(2) The taxpayer shall be liable to a penalty which shall be £100.

(4) If—

(a) the failure by the taxpayer to comply with the notice continues after the end of the period of six months beginning with the filing date, and

(b) no application is made under subsection (3) above before the end of that period,

the taxpayer shall be liable to a further penalty which shall be £100.

(5) Without prejudice to any penalties under subsections (2) to (4) above, if—

(a) the failure by the taxpayer to comply with the notice continues after the anniversary of the filing date, and

(b) there would have been a liability to tax shown in the return,

the taxpayer shall be liable to a penalty of an amount not exceeding the liability to tax which would have been so shown.

(6) No penalty shall be imposed under subsection (3) above in respect of a failure at any time after the failure has been remedied.

(7) If the taxpayer proves that the liability to tax shown in the return would not have exceeded a particular amount, the penalty under subsection (2) above, together with any penalty under subsection (4) above, shall not exceed that amount.

(8) On an appeal against the determination under section 100 of this Act of a penalty under subsection (2) or (4) above, neither section 50(6) to (8) nor section 100B(2) of this Act shall apply but the [Tribunal] may—

(a) if it appears to them that, throughout the period of default, the taxpayer had a reasonable excuse for not delivering the return, set the determination aside; or

(b) if it does not so appear to them, confirm the determination.

5.Section 59C TMA states, so far as relevant:

Surcharges on unpaid income tax and capital gains tax

(1) This section applies in relation to any income tax or capital gains tax which has become payable by a person (the taxpayer) in accordance with section 55 or 59B of this Act.

(2) Where any of the tax remains unpaid on the day following the expiry of 28 days from the due date, the taxpayer shall be liable to a surcharge equal to 5 per cent of the unpaid tax.

(3) Where any of the tax remains unpaid on the day following the expiry of 6 months from the due date, the taxpayer shall be liable to a further surcharge equal to 5 per cent of the unpaid tax.

(7) An appeal may be brought against the imposition of a surcharge under subsection (2) or (3) above within the period of 30 days beginning with the date on which the surcharge is imposed.

(8) Subject to subsection (9) below, the provisions of this Act relating to appeals shall have effect in relation to an appeal under subsection (7) above as they have effect in relation to an appeal against an assessment to tax.

(9) On an appeal under subsection (7) above section 50(6) to (8) of this Act shall not apply but the [Tribunal] may—

(a) if it appears to them that, throughout the period of default, the taxpayer had a reasonable excuse for not paying the tax, set aside the imposition of the surcharge; or

(b) if it does not so appear to them, confirm the imposition of the surcharge.

(10) Inability to pay the tax shall not be regarded as a reasonable excuse for the purposes of subsection (9) above.

The facts

6.The Taxpayer is a self-employed qualified massage therapist. In February 2003 she was the victim of a vicious robbery that left her with both physical and psychological injuries. Her bank cards were stolen and the contents of her bank account were systematically emptied – even going into substantial unauthorised overdraft. The monies the Taxpayer had earmarked for her income tax payments were among the funds lost. It took the bank some two years to sort out the account. The Taxpayer became homeless, relying on the kindness of acquaintances or sleeping on the floor of the clinic where she worked. She was told she was not eligible for state benefits, and that she was not a priority case for housing. There were times when she could not afford to eat properly. She gradually resumed her work, at first hampered by her own injuries. Her psychological state was poor as a result of the trauma of her attack; even several years after the robbery she still suffered periods of severe depression. In December 2006 the Taxpayer had a two-and-a-quarter hour meeting with HMRC officers which she felt was unhelpful and unsympathetic to her position. The Tribunal had sight of the consultant psychiatrist’s report prepared for the Criminal Injuries Compensation Authority in March 2009, which diagnosed post-traumatic stress disorder (PTSD) and a prognosis that PTSD drags on chronically and quantifying the impact accurately is very difficult. The consultant commented in the report, “[the Taxpayer] has continued to work out of necessity, despite PTSD, since the attack. Many patients with her degree of symptoms would have discontinued working.”

Reasonable excuse

7.Mr Torino for the Taxpayer stated that she was so obviously unable to attend to her tax affairs since the attack to the present that she had a reasonable excuse against all the penalties and surcharges.

8.The Tribunal considered that the provisions of ss 59C and 93, in particular the requirement that any reasonable excuse must exist throughout the period of default, required that the circumstances of each penalty/surcharge be examined separately.

9.The Tribunal noted that the Taxpayer had made commendable efforts to resume her career after the attack. She had gradually increased her turnover until she was billing approximately £1,000 per week, allowing for normal vacations. She had retained a number of accountants in relation to her tax affairs before Mr Torino took over in 2009.

Late filing penalties

10.In relation to the late filing penalties, the Tribunal noted:

(1)A batch of three tax returns was filed in August 2004, two of which were late and attracted both first and second penalties. One set of penalties had been reduced to nil as there was a tax repayment due for that year.

(2)The 2004-05 return was also filed late but as the Taxpayer at that time had no settled address, HMRC accepted that no return had been issued to her and thus no penalty had been raised.

(3)The returns for 2005-06 and 2006-07 were filed timeously.

(4)The 2007-08 return was filed five months late and attracted a first penalty only.

(5)The 2008-09 return was filed timeously.

11.The Tribunal concluded that the Taxpayer did have a reasonable excuse for the late filing of the 2002-03 return as it was filed in August 2004 (18 months after the attack) and it was reasonable that she would take some time to bring her affairs up to date, given her personal circumstances.

12.After August 2004 her advisers had managed to keep her filings up to date until January 2009 when there was another late filing. The Tribunal specifically invited the Taxpayer to explain that delay but she was able to refer only to her general state of bad health at that time. The Tribunal has great sympathy for the Taxpayer’s health conditions but, especially given that she had professional representation throughout this period, the Tribunal concluded she had not discharged the burden of proof on her to demonstrate a reasonable excuse for the late filing of the 2007-08 return. Accordingly, her appeal against the first penalty of £100 for that year is dismissed.

Late payment surcharges

13.In relation to the late payment surcharges, the Tribunal noted:

(1)The Taxpayer made a block payment on August 2007 covering several years of assessment. Mr Rowe for HMRC confirmed that that payment had brought the Taxpayer’s tax liabilities up to date at that time. Five of the surcharges related to tax years covered by the August 2007 payment.

(2)The tax liabilities in respect of 2006-07 and 2007-08 were both paid over one year late.

(3)Section 59C(10) specifically provides that inability to pay does not constitute a reasonable excuse, but the Tribunal considers that the reasons why there was an inability to pay may in themselves constitute a reasonable excuse.

(4)Mr Torino contended that the tax liability for the year 2008-09 had been paid on time but had been incorrectly allocated by HMRC, resulting in a late payment having been incorrectly recorded. Mr Rowe provided an extract from HMRC’s payment records showing the receipt and its accounting.

14.For the same reasons as in paragraph 11 above, the Tribunal concluded that the Taxpayer did have a reasonable excuse for the late payment of the liabilities covered by the payment in August 2007.

15.The Tribunal had specifically invited the Taxpayer to explain the delay in making payments in respect of 2006-07 and 2007-08 but she was able to refer only to her general state of bad health at that time. The Tribunal concluded she had not discharged the burden of proof on her to demonstrate a reasonable excuse for the late payments for those two tax years. Accordingly, her appeals against the first and second surcharges for the years 2006-07 and 2007-08 are dismissed.

16.From the evidence submitted in relation to the payment in respect of 2008-09, the Tribunal concluded the payment had been made by the due date. Accordingly, the Taxpayer’s appeal against the first surcharge for the year 2008-09 is allowed.

Decision

17.The appeal against the late filing penalties in respect of the tax year 2002-03 is allowed. The appeals in respect of the late payment surcharges in respect of the tax years 2002-03, 2003-04, 2005-06 and 2008-09 are allowed.

18.The appeal against the late filing penalty in respect of the tax year 2007-08 is dismissed. The appeals in respect of the late payment surcharges in respect of the tax years 2006-07 and 2007-08 are dismissed.

19.Section 11 of the Tribunals, Courts and Enforcement Act 2007 provides that any party to a case has a right of appeal to the Upper Tribunal on any point of law arising from a decision of the First-tier Tribunal. The right may be exercised only with permission which may be given by the First-tier Tribunal or the Upper Tribunal. Rule 39(2) of The Tribunal Procedure (First-tier Tribunal) (Tax Chamber) Rules 2009 SI 2009/273provides that a person seeking permission to appeal must make a written application to the Tribunal for permission to appeal, which application must be received by the Tribunal no later then 56 days after the date that the Tribunal sends full written reasons for the Decision. Rule 39(5) provides that an application for permission to appeal must identify the decision of the Tribunal to which it relates, identify the alleged error or errors in the decision, and state the result the party making the application is seeking.

20.This document contains the full written reasons for the Decision.

APPENDIX:

Tax Returns and Penalties

Year / Tax Return / 1st Penalty / 2nd Penalty / Total Amount
Issued / Due by / Received
2001-02 / 06/04/02 / 31/01/03 / 06/08/04 / 12/03/03 / 11/08/03 / £0
2002-03 / 06/04/03 / 31/01/04 / 06/08/04 / 16/03/04 / 03/08/04 / £200
2003-04 / 05/08/04 / 31/01/05 / 06/08/04 / - / - / -
2004-05 / 31/01/06 / 26/06/06 / - / - / -
2005-06 / 21/12/06 / 28/03/07 / 10/01/07 / - / - / -
2006-07 / 06/04/07 / 31/01/08 / 31/01/08 / - / - / -
2007-08 / 06/04/08 / 31/01/09 / 30/06/09 / 24/03/09 / - / £100
2008-09 / 28/07/09 / 31/01/10 / 31/01/10 / - / - / -

Surcharges, profits liabilities and payment

Year / Turnover / Profit / Liability / Due Date / Date paid in full / 1st Surcharge / 2nd Surcharge
2001-02 / 5,235 / 2,538 / Refund
£209.55 / 31/01/03 / - / - / -
2002-03 / 17,741 / 11,323 / £1,714.92 / 31/01/04 / 23/08/07 / £85.25 / £85.11
2003-04 / 27,292 / 17,816 / £3,725.11 / 31/01/05 / 23/08/07 / £186.25 / £186.25
2004-05 / 37,804 / 25,614 / £6,018.28 / 31/01/06 / 23/08/07 / - / -
2005-06 / 42,531 / 27,668 / £6,581.10 / 28/03/07 / 23/08/07 / £329.05 / -
2006-07 / 49,129 / 32,897 / £8,100.45 / 31/01/08 / 23/03/09 / £75.96 / £75.96
2007-08 / 46,814 / 18,593 / £3,742.80 / 31/01/09 / 02/02/10 / £187.14 / £187.14
2008-09 / 44,129 / 15,127 / £2,593.76 / 31/01/10 / Unpaid / £96.34 / -
TRIBUNAL JUDGE
RELEASE DATE: 5 May /2010

1